A World Dividing: The International Implications of the Sino-American Rift
Ambassador Chas W. Freeman, Jr., USFS, Ret.
Senior Fellow, Watson Institute for International and Public Affairs, Brown University
Mitchellville, Maryland, 13 November 2019
In its “great and unmatched wisdom,” the Trump administration has declared economic war on China. The United States has raised taxes on Chinese imports to levels not seen since the Smoot-Hawley tariffs of the Great Depression. Bilateral trade is down 10 percent from last year. Washington has embargoed the export to China of a constantly expanding list of high-tech manufactures. It seeks to block Chinese telecommunications companies from third-country markets. The United States has mounted a vigorous campaign to persuade other countries to reject Chinese investments in their infrastructure.
Washington has also gone out of its way to make it clear that Chinese investment in the United States is no longer welcome. As a result, the annual flow of Chinese capital to the U.S. is down by 90 percent. The U.S. government is exploring ways to prohibit American investment – including portfolio investment – in China. Despite their American origins and role in reinforcing U.S. global primacy, the Trump administration now rejects the WTO and other multilateral institutions as constraints on its “America First” policies toward China and a lengthening list of other countries. This is a major blow to the so-called “rule-bound international order” the United States spent the last century promoting.
In response to these radical shifts in U.S. policy, China has raised tariffs on U.S. goods but lowered them on imports from America’s competitors. It has authorized but not yet implemented a ban on business with U.S. companies hostile to it on national security issues like separatism in Hong Kong, Taiwan, Tibet, and Xinjiang. It has continued imports of U.S. components for high tech industry to the extent it can but has redoubled its drive to eliminate its need for such imports, for which it has been by far the United States’ largest export market.
Beijing remains committed to multilateralism and strongly supportive of institutions like the WTO, IMF, World Bank, and regional development banks. Even before the Trump administration’s assault on them, these pillars of the rule-bound order had been weakened and to some extent incapacitated by U.S. obstruction of reforms in their governance and increases in their capital and lending capacity.
Beijing responded to the inability of US-dominated institutions to meet the demands for their services by working with other countries to create and fund parallel international financial institutions. These both supplement and complement legacy bodies. Examples include the Chinese-sponsored Asian Infrastructure Investment Bank, the New Development Bank, and a bewildering variety of funds that offer support to connectivity projects under Beijing’s Belt and Road Initiative. The new banks are staffed by a multinational rather than Chinese workforce and operate under essentially the same rules as the organizations they mimic. They complement rather than compete with the institutions the United States sponsored after World War II.
Trump’s redefinition of international trade as a zero-sum national security game has inaugurated an assertively avaricious American approach to economic relations with trading partners. This is accelerating the withdrawal of U.S. participation and the erosion of U.S. primacy in the governance of international trade and finance. Ironically, it is creating vacuums that draw in China, expanding its role and elevating its status. The likelihood that this evolution will be reversed is poor. The Trump administration’s “negotiating strategy” – if it may be called that – explicitly assumes that, if subjected to enough pressure, China will capitulate, as will Iran and north Korea. This is an entirely coercive approach – all “take” and no “give.” So far “maximum pressure” tactics have fostered recalcitrance and countermeasures rather than accommodation on the part of every country to which they have been applied.
“Maximum pressure” unaccompanied by a negotiating process aimed at anything less than humiliatingly unconditional surrender is not, of course, a new approach to problem solving for the United States. In an earlier era, it goaded Japan into attacking Pearl Harbor. Fortunately, for various reasons, it has not yet elicited a similar response from China, Iran, or north Korea. In the case of China, this is perhaps because, unlike the Japanese Empire, it does not view U.S. pressure tactics as effectively threatening its existence. China is a lot bigger, more self-confident, and realistic about the consequences of conflict with the United States than Japan ever was. Beijing wants to have acknowledged influence, not control, in its region. It is open to exploring accommodations with Washington that pre-war Tokyo was not.
But, as in America’s confrontation with Japan eighty years ago, China and the United States each see the other as determined not just to deny it primacy in the Indo-Pacific, but to strip it of its influence, expel or constrain its presence, and depress its growth. Beijing believes it is being targeted by an implacably hostile US strategy aimed at undermining Communist Party rule and the legitimacy of the political-economic system that has restored China’s wealth and power. This is the mirror image of apprehensions in Washington, where the national security establishment has convinced itself that China is trying to undermine democracy and impose its model of market Leninism on the rest of the world while eroding American power wherever it can.
Each country is big enough to change the world and has done so in the past. Depending on whether you calculate the size of the two economies in terms of nominal exchange rates or purchasing power parity, either China or the United States is now the world’s second largest economy or its largest. Regardless of who’s bigger and who began the current unpleasantness, when the elephants fight, smaller animals flee, ants are crushed, and the grass is flattened.
China sees the United States as an internal threat. Washington views China as an external threat – a strategic competitor, an ideological foe, and a revisionist power. I don’t agree with either side’s essentially paranoid view of the other. But what anyone outside the ruling elites in Beijing and Washington thinks doesn’t matter. In politics, perception is reality. Both countries are in the process of reconciling themselves to protracted confrontation based on real and imagined differences. Future generations in both countries and in the world at large will have to deal with the consequences of the current Sino-American contention, which is dividing the world into several distinct but overlapping economic, technological, political, and military ecosystems.
What are the implications for other countries and the global order of such divisions? It doesn’t really matter to the victims of the struggle between the world’s two largest economies which behemoth is right, and which is wrong. What’s happening is altering their environment in ways in which they have no say. And, they know that, to the extent they can’t get out of the way, they’re going to get hurt.
The newly resumed antagonism between the United States and China will not just remodel their economic relations with third countries and institutions of global governance. As the IMF, OECD, and Bank of International Settlements (BSI) have pointed out, this confrontation is doing grave damage to global growth. But it is also reshaping the domestic political economies of both countries. My focus today is on the international effects of the Sino-American rift, but I will end with a thought or two about how Sino-American antagonism is likely to affect both China but the United States over the longer term, when President Trump will have taken his “very big brain” into earthly oblivion or the afterlife, and Xi Jinping will have met Marx, wherever Marx may now be.
Changes in the Economic and Commercial Ecosystems
Trump’s trade wars have already set in motion major changes in the global political economy. They have put on notice the world’s multinational corporations, many of which are American in origin and remain US-based. Companies must now protect themselves against unheralded government-imposed interruptions in trade or the sudden imposition of tariffs. This means they must produce or source each component for their products in more than one country – preferably more than two.
Carrying out such diversification is a severe management challenge. It inflicts unbudgeted costs, and it adds to the complexity of corporate supply chains while reducing their efficiency. But, with rare exceptions, companies now have no choice. Their profitability depends on leveraging international comparative advantage through supply chains. And that requires terms of trade that are liberal and predictable — the opposite of the protectionist and mercurial policies now in vogue in Washington.
In 2018, average U.S. tariffs on Chinese goods were three percent. They are now 21 percent and set to rise even more. Companies must hedge against being mugged by governments’ impulsive imposition of measures that savage their profitability. This applies not just to companies in the United States, but also to those in other countries inspired by the nationalistic American example, like Japan and south Korea.
The requirement for companies to relocate production favors markets that are significantly enhancing their economic potential by lowering their tariffs and reducing non-tariff barriers, diversifying their exports, improving their economic structures and dynamism, and strengthening their physical and digital infrastructures. I note with sadness that, unlike China and many countries in Southeast Asia, the United States is not now doing any of these things. For the most part, it is doing the opposite.
So, manufacturers and their Chinese partners are moving some operations directed at supplying the American market out of China. Almost all these operations are relocating to other emerging markets in places like Mexico, Southeast Asia, India, and parts of Africa. This is accelerating China’s outsourcing of its labor-intensive industries and pushing it up the value chain into more capital and knowledge-intensive production. Meanwhile, companies with sales or hopes for sales in China and other major markets are shifting production to countries in Asia, Europe, and Latin America with more predictable economic policies than the United States.
The U.S. trade war with China has caused exports to China of American farm and forest products as well as high-tech manufactures to fall dramatically. In a global economy disrupted by trade wars, China is more concerned than ever about food security for its 1.4 billion people. Chinese companies, both state-owned and private, are responding to the new uncertainties by beginning to take a direct role in international commodity trading, processing, and logistics.
As China has turned to new suppliers of agricultural commodities, its companies are investing in expanded production in Africa, Southeast Asia, Europe, Latin America, Russia, and Ukraine. That’s good for these countries’ agricultural development and export earnings. But, when and if the trade war finally ends, the United States is likely to discover that it has established itself as China’s supplier of last resort.
Ironically, instead of causing Chinese jobs to migrate to the United States, as its authors intended, the Trump administration’s economic war on China seems to be spurring investment and job creation in third countries’ industry and agriculture by Chinese companies, Sino-foreign joint ventures, and U.S, Japanese, and European multinational corporations. U.S. policies are perversely expanding rather than contracting China’s economic sphere of influence. Supply chain migration is bringing other countries closer to China even as the United States barricades itself against Chinese imports.
The new taxes on such imports have raised prices for American consumers but are not boosting the U.S. manufacturing sector. Erratic policymaking in Washington has created a climate of unpredictability that currently deters all but the most intrepid foreign companies from investing in America. In the first half of this year, foreign direct investment (FDI) in the United States dropped by more than one-fourth. In China, it was up, but only by five percent.
Over time, trade agreements boost exports and gross domestic product (GDP). Larger-scale regional trade deals increase competitive pressures on producers in all participating nations. This drives local businesses to become more efficient and productive. It also offers countries the chance to specialize in the most productive industries as well as those best suited to their natural resource and demographic endowments. Those excluded or excluding themselves from multilateral trade deals, as the United States did with the Trans-Pacific Partnership (TPP), find their goods and services at an increasing competitive disadvantage compared to those who have banded together to open their markets to each other. As the American economy becomes ever more isolated by tariffs, embargoes, and government-managed trade, its efficiency and competitiveness are declining.
The Trump trade wars are beginning to take their toll on American jobs. After a burst of growth fueled by tax cuts for corporate bureaucrats, financiers, and plutocrats, accompanied by massive increases in deficit spending and subsidies to the military-industrial complex, the economy is slowing down. Employment in manufacturing in the United States today represents a slightly smaller share of total non-farm payrolls than it did three years ago. Two-thirds of economists think the U.S. manufacturing sector is already in recession. Prospects for future U.S. exports of manufactured goods have fallen to levels last seen in 2009, at the outset of the Great Recession.
America’s newly negative attitude toward multilateral trade agreements has had the perverse effect of setting off a scramble by others to negotiate more of them. The EU has recently reached agreements with Japan, Vietnam, and Latin America’s Mercosur. New regional trade pacts are emerging in Africa and Asia. The Regional Comprehensive Economic Partnership (RCEP) is about to bring East Asian nations together in a huge free trade area centering on China.
Beijing is negotiating tariff reductions with the EU, Japan, and south Korea. Its Belt and Road Initiative envisages over fifty additional trade liberalization agreements. These developments promise a steady rise in trade and economic efficiency in a widening arena from which the United States has excluded itself.
Meanwhile, the Trump administration is deliberately crippling the WTO by depriving its appeals process of a quorum. This is likely in time to drive countries that remain devoted to free trade to organize their own collectively sponsored parallel version of the WTO – one in which the United States cannot block the majority. What we are seeing is the potential division of the global economy into a number of distinct ecosystems. These can and will each evolve separately.
A series of coalitions of nominally equal sovereign states with low-tariff economies that seek the continued liberalization of the terms of international trade is emerging. Many of these coalitions will include China and could even be led by it. As a nation committed to protectionist policies, the United States will be isolated from these coalitions. So will India, which has just reaffirmed its preference for an economy closed to competition from its neighbors.
In the absence of the WTO or any analogue to it, trade and investment disputes involving Americans and the inhabitants of other protectionist societies will be dealt with as they were in the 1930s. That is, they will be decided by bilateral trials of raw power, in which the big will bully the small and the rich will exact concessions from the poor. Uncompromising U.S. unilateralism in the form of tariffs, quotas, and sanctions is “weaponizing” the terms of trade and investment to strongarm other economies. American hostility to multilateralism and process-based dispute resolution precludes the organization of a US-centered, plurilateral successor to the WTO.
The dollar is the U.S. national currency. The now-crumbling “Pax Americana” made it the most widely accepted international means of exchange. Most unilateral American sanctions at present rely on U.S. sovereignty over the dollar.to prohibit transactions with countries the United States wants to pressure or punish. Many such sanctions punish countries friendly to the United States if they deal with those Washington has targeted. In effect, the United States uses the dollar’s indispensable role in the global banking system to override the sovereignty of other countries by forcing them to conform to U.S. policies, whether they agree with these or not.
As these sorts of sanctions have proliferated, international resentment of them has grown. China and other countries are exploring the creation of parallel banking systems that could bypass financial chokepoints (like SWIFT), which enforce dollar-based sanctions. China, which is the world leader in digital transactions, is exploring issuing an international block-chain currency. As countries work together to evade U.S. control of their international transactions, the dollar could lose its status as the universal medium of trade settlement. The consequences of this for the United States would be severe. Other countries would be happy to see the U.S. currency monopoly broken.
Faced with a choice between a system that approximates the orderly predictability of WTO-like procedures and one based on the principle that might makes right, it’s a safe bet that most countries will opt for order with due process. This was what made the decades-long Pax Americana a success. It is also why any country practicing lawless bilateralism will find itself in a shrinking minority.
In the new era inaugurated by Trump’s trade wars, countries with export-based strategies for economic growth that are on the rise will be less likely to look to the American market than to the more open economies of China, the EU, Japan, and – if they further liberalize their approaches to trade – India and Brazil. Even Canada and Mexico remain committed to liberalizing their terms of trade with countries outside NAFTA or the USMCA. “America First” looks more and more like “America sidelined” or “America alone.”
The Technological Ecosystem
Trade is the exchange of what one has or can make better than others for what one doesn’t have or someone else can make better. Such transactions enrich both sides, but especially those who concentrate on raising their game by investing in their human, physical, and digital infrastructure, preventing the ossification of their domestic markets by precluding their domination by monopolies and oligopolies, fostering scientific research, and adopting financial policies that encourage the commercialization of new technologies.
The supply chains characteristic of post-Cold War globalization were made possible by the worldwide diffusion of technology, much of it originally American. But the United States has begun to treat trade and investment as national security issues rather than as factors in national prosperity and wellbeing. It is subjecting ever more technology and knowhow to export controls. The purpose, as in the Cold War, is to prevent technology falling into the hands of a military adversary. China has been designated as such.
The Soviet Union had an economic ecosystem separate from that of the capitalist world. Denying it trade, investment, and technology transfer had few, if any, knock-on effects on economic growth or capital flows beyond its borders. But China, unlike the Soviet Union, is fully integrated into the capitalist world. Also unlike the Soviet Union, which disdained the profit motive and lacked a system that rewarded innovation with wealth, China has gotten very good at transforming new technologies into new products. At present, one-fourth of the world’s scientists, technicians, engineers, and mathematicians are Chinese. Most of them are young and just beginning their careers. Having been a net importer of technology for many years, China is rapidly becoming a formidable innovator and exporter of technology.
No country wants to forego the benefits it can obtain from association with both the United States and China and the technologies each develops and offers. To pose such a choice is off-putting to the point of futility. Given China’s huge size and the extent of its integration into the global economy, the application of export controls to Chinese industry is widely disruptive. The U.S. case for rejecting Chinese digital technology is that it could facilitate Chinese surveillance and sabotage of those who use it. But few countries are following the United States in banning Chinese technology. For many, the choice seems to be whether to be bugged by the U.S. National Security Agency or China’s Ministry of State Security. (In reality, they may well be bugged by both.)
Washington’s efforts to subject trade to unilaterally determined national security standards are having the perverse effect of isolating the United States more than China. Countries must now take precautions against American attempts to restrict their use of technology and equipment developed in the United States. This is not a winning strategy for America. No such concerns apply to technology and equipment originating in China or other countries.
Meanwhile, the United States has begun to apply ever more severe official filters to scientific and other exchanges with China. Visas are being denied to Chinese scientists, researchers, and attendees at conferences in the United States. (This violation of international comity and the U.N. headquarters agreement will cause future conferences to be held elsewhere, where the U.S. Immigration and Customs Service [ICE] can’t interfere with them.) The FBI is invading American university laboratories in search of Chinese and other foreigners engaged in learning or developing scientific knowledge that U.S. securocrats fear their homelands might militarize and use against the United States.
The clear trend in America today is away from openness and toward scientific autarky – xenophobic self-reliance – justified on national security grounds. The infringements on academic freedom and collaborative research this trend entails promise to have far-reaching consequences.
Science and technology advance most rapidly through collaboration, not behind security barriers. Countries that cut themselves off from the free exchange of people and ideas are less innovative than those that facilitate cross-cultural communication. In general, the wider the collaboration, the greater the opportunities for breakthroughs. The best proof of this is the emergence of the United States as the global leader in science and technology.
America has always been a prodigious importer of foreign-trained talent. Openness to foreigners and their ideas is what has made American universities and the communities around them the world’s greatest centers of innovation. They have been able to draw on talent and investment from every part of the world. This has been a major contributor to American wealth and power. Curtailing the foreign presence in U.S. labs will weaken the United States and undercut, rather than bolster, its economic, political, and military power.
China has the world’s largest and fastest growing population of STEM workers. Sixty percent of the researchers into artificial intelligence (AI) in the United States are foreign citizens, most of them Asian, and many of them Chinese. The current effort to sustain American scientific primacy by severing relations with China’s intellectuals rather than by boosting investment in domestic STEM education and R&D is more likely to retard progress in the United States than to halt it in China. As an example, despite all the U.S. sound and fury about Huawei and other Chinese telecommunications giants, by the end of this year, Chinese companies will have equipped their country with 130.000 5G base stations. By the end of next year, 300 Chinese cities will be wired for 5G. Americans will still be waiting for it.
Washington’s attempt to shut Chinese and other foreign nationals out of collaborative research in American institutions is already beginning to encourage them to avoid American involvement as they do scientific research and develop new technology. Others are eager to take Americans’ place in cooperating with Chinese counterparts. This means, at a minimum, that innovations in key technologies like 5G telecommunications, artificial intelligence, semiconductors, quantum computing, biotechnology, and the Internet of Things will develop on different tracks in the United States and abroad. Companies will no longer be able to make and market a single product globally. They will have to design products for the standards prevailing in specific markets and produce them using distinctive supply chains.
In effect, the American war on Chinese technology is dividing the world into at least two – maybe more – technological ecosystems. Whatever else this means; it foretells the erosion and ultimate expiration of U.S. scientific centrality in world affairs as other centers of innovation emerge. And, if China adopts restrictions on technology transfer comparable to those of the United States in future, Americans risk being denied access to numerous emerging technologies developed in China or through Sino-foreign collaboration.
Changes in the Global and Regional Political Orders
The political hostility between China and the United States is now deeply entrenched. On the American side, hostility to China reflects a combination of ideological objections to China’s increasingly defiant illiberalism, distress at China’s apparent challenge to over a century of American global and regional preeminence, and real and imagined Chinese misdeeds that facilitate the politically convenient attribution of socioeconomic decline on China rather than to ill-considered U.S. policy choices.
Beijing is trying to govern a universally literate, increasingly bourgeois society with a political system originally designed to impose order on Russian feudalism and then grafted onto a native dynastic tradition. The Chinese Han majority’s attempts to erase Uyghur religious and ethnic identity are horrifying to anyone who cherishes the integrity of the individual and the rights of people to cultural self-determination. The riots in Hong Kong are seen in the West as backlash against Chinese encroachment on the ancient liberties of people there. (It’s more complicated than that, but never mind.)
Those who think America’s purpose is to combat and end tyranny in the world see China’s regime as deserving to be overthrown. Those who imagine China’s domestic governance by a Leninist party means that it conducts its foreign relations in the same manner as the Soviet Union did are engaging in a priori reasoning with no grounding in evidence. China’s governmental system may be a menace to its people. It is neither available for export nor in demand outside China.
The tightening state surveillance and controls over political discourse in China are a disheartening rebuke to those who entertained the fantasy that the rise of a huge middle class in China would inevitably lead to greater freedoms there. Chinese efforts to impose their brand of political correctness on foreign critics offend rather than persuade. What are “trigger words” and “micro-aggressions” for Chinese are commonplaces and moral convictions abroad. China’s image beyond its borders is bad and getting worse.
Regrettably, that is also true of the contemporary United States. But the United States and China are not engaged in a beauty contest. Nor is narcissistic nationalism an effective antidote to foreign distaste and disapproval. Other nations judge great powers in part by the extent to which their systems of government deliver prosperity and domestic tranquility. But they pay even more attention to such powers’ behavior abroad and its consequences for their security and interests and the world and regional orders. On that comparison, America, with its now well-established disregard for the U.N. Charter and other nations’ sovereignty, domineering approach to relations with other states, incivility, and aggressive uses of force, no longer comes off well.
The United States has often insisted on countries embracing its transformational goals as a condition for good relations. By contrast, China’s national security strategy states that “it is the right of every sovereign state to choose its own development path. No country can impose its own model on others, let alone forcibly subvert the governments and political systems of other countries. China respects the different paths chosen by other countries. It does not “import” foreign models, nor “export” the Chinese model, and will never require other countries to replicate its practices.” For the most part, Beijing seems to practice what it preaches.
In the Cold War, the Soviet Union and the United States each protected lesser states and prevented them from acting in ways that might ignite a hot war culminating in a nuclear exchange. The symmetrical effects of bipolar rivalry kept things largely stable and predictable. The collapse of the Soviet empire ended the constraints on middle-ranking powers, as Iraq’s invasion and attempt to annex Kuwait immediately showed. The demise of the USSR was followed by a Cold Peace and a U.S. attempt to impose an American sphere of influence on the entire world beyond the Russian Federation, China, Iran, north Korea, and Cuba. But American dominance is now ebbing, and Washington no longer clearly aspires to guarantee the peace or inhibit regional arms races and wars.
For its part, China’s rejection of entangling alliances resembles that of the United States before World War II. Beijing views alliances as liabilities rather than assets. Commitments to protect foreign nations could drag it into quarrels of no intrinsic concern to it and embroil it in wars to advance or defend interests other than its own. Aside from carefully ambiguous and entirely self-interested relationships with north Korea and Pakistan, Chinese have no implicit – still less explicit – obligations to defend anyone other than themselves.
Washington’s view of alliances may now be on an uncanny path to convergence with Beijing’s jaundiced opinion of them. The United States seems to be reconsidering the commitments it made to protect protégés and “allies.” It is acquiring a reputation for abandoning such commitments when it discovers, under pressure, that what’s at stake for it falls well short of the obligations it blithely assumed when it was able to assume its bluff would never be called. Be that as it may, as America ceases to underwrite global prosperity and security, the world’s political geometry is increasingly in flux.
Russia has emerged as the go-to great power in the Middle East. China seems to have won the 21st century contest for the most influential external power in Africa. Southeast Asia is walking a tightrope between China and America, keeping an eye on and seeking maximum benefits from both. Managerial ineptitude aggravated by U.S. regime change operations has brought down Venezuela, but the countries of Latin America are following their own course rather than cleaving to the United States as they once did. The transatlantic alliance is fraying, as is Europe itself.
Middle-ranking powers like Britain, Japan, south Korea, and Turkey, formerly deferential to Washington, are ever less inclined to follow its lead. Iran will not come to heel. The so-called “Indo-Pacific” has been revealed to be an American and Japanese fantasy. India remains dominant in its region and determinedly globally nonaligned. Indonesia is a work in progress. Pakistan is a failing state that keeps failing fully to fail. North Korea keeps the world at bay with venomous rhetoric and a newly developed nuclear deterrent.
As international opprobrium builds against Israel’s indefensibly cruel treatment of its captive Palestinian Arab population and its US-backed scofflaw international behavior, it is increasingly held in international contempt. Gaza and Yemen are festering sores on the human conscience. The United States is implicated in all of these and looked at increasingly askance.
In short, the world of the past is fracturing and becoming something very different. Blocs of nations are disintegrating. Confrontation between states is replacing wary coexistence and arms races are breaking out or intensifying. The ability of the world’s countries to cooperate on common challenges like global warming, nuclear non-proliferation, arms control, trade liberalization, development assistance, and other issues of global and regional governance is atrophying. Failed states are bringing forth diabolically vicious non-state actors with global reach. Unrest, including mob violence and ethnic cleansing, is spreading.
No country is now in charge in world affairs. America is withdrawing from its previous self-appointed responsibility as the global manager. China has no apparent desire to take on this role. There is no other contender for the job. The “American century” is past. This is now “nobody’s century.” Despite American apprehensions about China, it is likely to remain so.
Global and Regional Military Effects of Sino-American Animosity
The slow-motion collapse of the Pax Americana has liberated American client states from the felt need to defer to the United States and released long-repressed national rivalries. After all, if the United States is deemed unreliable, it is foolish to count on it to deter or balance one’s adversaries. Increasingly, former protégés of the United States see themselves as mainly on their own. They act accordingly. Examples include the Sunni Arab states of the Arabian Peninsula in relation to Iran or Yemen; Turkey with respect to Syria, Russia, and Iran; Israel with the Palestinians, Lebanese Hezbollah, Syria, Iran, and Iraq; Britain with the EU; Japan with Russia; and south Korea with north Korea and Japan..
States that once counted on the Pax Americana or international law-based diplomacy to deter or inhibit attacks on them by their enemies are arming themselves for self-defense. As the late, unlamented Al Capone said, “you can do more with a kind word and a gun than just a kind word.” The result is a proliferation of regional arms races. The United States accounts for about one-third of global arms sales. Since 2002, it has announced more than $560 billion in such sales. In 2018 alone, the Trump administration notified Congress of $78 billion in arms transfers to other countries. America’s foreign competitors are experiencing comparable growth in their sales.
But the largest arms race in history is now in its early stages. It pits the United States against China. Together, these adversaries are spending more on their militaries than the rest of the world combined. China’s rapid modernization of its armed forces and their weaponry is directed at countering a U.S. attack or intervention in the ongoing Chinese civil war over Taiwan. As it develops military capabilities competitive with the United States, it too is becoming a force in international arms markets. Meanwhile, the intensifying economic and technological warfare between the United States and China is inextricably connected to their military contest.
Much of the new weaponry being invented and transferred is relatively inexpensive and well-suited to enabling small states to equalize themselves against larger adversaries. In the hands of state or non-state actors, cyberweapons can crash power grids, transportation, and communications networks, paralyze financial and medical systems, and disable government functions. Drones and missiles can evade conventional defenses to strike military and industrial infrastructure and personnel with devastating accuracy. Weak states with nuclear weapons can effectively deter attack by more powerful ones. So, more countries are now considering developing their own nuclear and other weapons of mass destruction and delivery systems. Meanwhile, the United States is unilaterally terminating Cold War arms-control agreements. There are no new initiatives to limit arms races or weapons of mass destruction in sight.
The result is a world in which there is a rising risk that smaller countries will shoot first and think later, dragging their larger protectors into war. If deterrence is disbelieved, it invites attack. If it is over-credited, it encourages adventurism. In identifying the major strategic theme of our times as great power rivalry, Washington – like the great European capitals of 1914 – is focusing on the wrong threat and devising the wrong strategy.
As this century began, Henry Kissinger predicted that ‘a policy that is perceived as having designated China as the enemy primarily because its economy is growing, and its ideology is distasteful, would end up isolating the United States.” He was right. The U.S effort to contain China is also spurring it to become technologically more self-sufficient.
China has not capitulated to American pressure and will not do so. The United States will not easily yield its global and regional primacy. So, there is impasse accompanied by mounting confrontation.
In this confrontation, each side has advantages. China’s industrial economy is now at least half-again larger than America’s. Its scientific and technological workforce is much younger and larger. China is on the defensive against the United States, which must project American power across a wide ocean to compete with China on its home ground and near abroad. China has no defense obligations to any country other than itself. Its leadership is economically literate and has a remarkable record of competence in delivering prosperity and domestic tranquility to its people. China continues to grow. It is focused on raising its standard of living and becoming more competitive. By 2025, some projections indicate that nine Chinese provinces will enjoy higher average incomes than the United States, as Singapore does today. By 2040, incomes in all of China should exceed the U.S. average.
For its part, the United States’ geographic position as well as its natural and human resources remain unmatchable. Despite many social problems and a constitutional crisis, the United States is formidably equipped to compete, when it adopts policies that leverage its underlying strengths. It is not China’s fault that it has not. The US political system, governmental competence, and international situational awareness are all manifestly currently in decline. The United States is acting as though it can win a competition with China by keeping China down, not raising its own game.
As the United States and China “decouple,” both will experience slower growth and lower living standards than they would if they each leveraged the progress of the other. Each will see itself shut out of scientific and technological advances in the other. Neither will be able to impose its will on the rest of the world. The cooperation between the two that is the sine qua non of effective efforts to deal with planetwide problems – like global warming – will fall short of its potential.
It turns out that trade wars are not “easy to win.” Like other wars, their outcomes are uncertain. Nor are they without long-term consequences. Some such consequences are already apparent. Even if the two sides patch together some sort of ceasefire in their trade war, the technological, political, and military contests it has catalyzed between the United States and China will not end. They mark a deflection point in history that will shape the century before us.
 The Society for Worldwide Interbank Financial Telecommunication.